Traditional automakers could increase earnings by hastening the transition to electric vehicles

According to a recent study, the world’s major traditional carmakers may enhance their profit margins and increase their worth to investors by speeding up the shift to electric vehicles over the next decade. According to Profundo, a consultant, Volvo, Toyota, Volkswagen, Stellantis, BMW, and Mercedes-electric Benz’s carmaking operations will be much more profitable than their conventional petrol and diesel equivalents within the next 3 to 5 years as carbon pollution restrictions tighten.

As legislation in major markets such as the EU and the UK want to restrict new internal combustion engines (ICE) as part of the campaign to reduce carbon pollution from transportation, the world’s largest carmakers are all aiming to grow electric car manufacturing substantially over the next decade. Nonetheless, carmakers plan to sell millions more automobiles with gasoline and diesel engines, partly because they are more profitable, but also because the shift to EVs (electric vehicles) can be costly.

Several automakers have cautioned that a hasty move away from gasoline and diesel will culminate in facility closures or job losses. Carlos Tavares, the CEO of Stellantis, expressed alarm earlier this month about anticipated battery shortages by 2025.

However, Profundo’s analysis predicts that, as carbon costs rise, ICE operations will become less profitable – and finally loss-making. Carmakers in the UK and EU, for example, are now subject to severe fines if they make the sale of very few electric vehicles. The United Kingdom is also exploring a zero-emission car mandate, which would require half of all vehicles to be 100% electric by 2028, with hybrids, which mix a battery with a gasoline engine, being banned in 2035.

According to the study, legacy carmakers could enhance their market value by €800 billion (£680 billion) if they sped the transition to electric vehicles. It was commissioned by Transport & Environment, which is a Brussels-based think tank.

“A speedier transition to electric is not just in the interests of the climate and customers, but is critical to the financial survival of European automakers,” Julia Poliscanova, who is the senior director at T&E for vehicles and e-mobility, said. EU legislators owe it to these firms and people to ensure a smooth transition. Higher CO2 regulations for cars than those proposed for 2025 and 2030 are critical to moving things up.”

The research was centered on a sum-of-the-parts analysis, which is a typical method used by investors to determine the value of a company. Considerably if some significant investors still believe Tesla is expensive despite its valuation decreasing by a third from its top in November 2021, if the electric vehicle operations were evaluated in sync with US electric vehicle pioneer Tesla, shareholder benefits may be even larger.

The study did warn, however, that due to increasing battery material costs, Russia’s invasion of Ukraine could put back the moment when electric cars are more viable than gasoline or diesel by one to three years, based on the make.

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